Case Study: Running a Contest or Sweepstakes

Problem:

A retailer offered a Facebook sweepstakes to drive traffic to its Facebook page with the chance to win a prize valued at $19.95. The retailer believed that, for such an insignificant prize and because the sweepstakes was for a short period of time, it did not need any official rules or disclaimers, and could keep things short, cheap, and easy. At the end of the prize entry period, the winner was selected and the retailer shipped off the prize via UPS. The problem? The prize winner was a resident of, and located in, Germany, where the prize was held in customs and would not be released until international taxes were paid on the item, which totaled $300. In order to avoid an unhappy winner, the retailer paid the $300 to release the prize to the winner. As a result, what the retailer believed to be a short, easy sweepstakes that did not require official rules, ended up costing the retailer much more than the value of the prize — $319.95.

Solution:

All sweepstakes, no matter how little the retail value of the prize may be, and no matter how short the period of time a sweepstakes is offered, are required by federal and state laws to have official rules. The official rules must include, among other things, a “no purchase necessary” statement; instructions for entry; start and end dates; deadline for entry; eligibility requirements (that establish age and residency restrictions), and a description of the prize and its monetary retail value. With an affirmative statement that prohibits entrants who reside outside of the United States, the retailer would have avoided the additional cost to pay international taxes, and, with official rules, would have been in compliance with US federal laws, state laws, and, if necessary, applicable international laws.

Result:

While the retailer avoided a close call by not posting official rules for its sweepstakes, the retailer violated US federal laws, state laws, and international laws. If the retailer had official rules stating the eligibility requirements, the retailer would not have had to pay costs associated with an international entrant and winner.

Lessons Learned:

As soon as you decide to use a sweepstakes, contest, or giveaway as a promotional tool for your products or services or to drive traffic to your social media sites, be sure you have official rules in place that among other things: (1) clearly explain the geographic scope of eligible entrants and prohibitions for entry; (2) provide alternate methods for entry; (3) meet applicable state laws for prizes valued over $500 and $5,000; (4) provide appropriate information and disclaimers based on the type of prize awarded, and (5) account for international laws and regulations if your sweepstakes extends beyond the United States. No sweepstakes, contest, or giveaway is exempt from having official rules and the cost to prepare them is closer to the international tax the retailer had to pay in this case than the penalties that the federal, state (and if applicable international) enforcement agencies will levy if a violation is discovered.